Report Links Biofuels With Food Prices

By Caroline Henshaw

For years, commentators have blamed Asia’s rapidly-expanding middle class for pushing up the cost of food and creating markets so volatile prices have spiked to record levels two times in four years.

But according to new research for the United Nations’ food body, the increasing diversion of grain and oilseeds to create fuel—particularly in the U.S. and Europe, which spend an estimates $8 billion a year supporting their biofuel industries—has had a far greater effect.

A new report by the Committee on World Food Security found that using grains like corn and wheat to create bioethanol, often blended with gasoline to create transport fuel, has added 0.5 percentage points to the growth in world cereal demand, pushing it to 1.8% a year from 1.3%.

In vegetable oils, which are used to make biodiesel and dominate Europe’s market, growth has been even more pronounced. While their use for food slowed down between the 1990s and 2000s, from 4.4% to 3.3% a year, industrial use soared, so that in the decade to 2010 it grew from 11% to 24% of world use.

“Such a spectacular development of the biofuel industry has been made possible only because of massive public support: subsidies, tax exemption and mandatory use in gasoline,” said the report.

In contrast to mainstream belief, it argues that without biofuels, the rate of feed consumption in everywhere but the Soviet Union (whose livestock industry is still recovering from a collapse under Communism) is actually slowing—despite the jump in demand for meat in Asia.

The argument would seem illogical. China’s and India’s populations together account for nearly 40% of the world’s total and their rapid expansion is creating ever more mouths to feed. Importantly, the growth of their economies is also creating more demand for meat, which takes up to eight times as much grain per kilogram to produce.

Yet, as the report points out, demand from rich economies is far less elastic than in developing countries like these as the proportion of consumers’ budgets spent on food is far less. As a result, growing consumption in rich countries is seen as far more influential in creating volatility as it does not react to price rises as much.

Because of this, the report finds that “limiting the use of food to produce biofuel is the first objective to be pursued to curb demand.” Those that are used should be produced “where it is economically, environmentally and socially feasible to do so, and traded more freely,” it adds.

This is not the first time the UN has come down against the use of biofuels. In a report for the Group of 20 meeting of agriculture ministers in June with other agencies, including the World Bank and the International Monetary Fund, the FAO urged the G20 to “remove…policies that subsidize or mandate biofuels production or consumption”.

But this new recommendation comes at a time when both the U.S. and the EU are reconsidering their support programs for biofuels, both because of their potential role in pushing up food prices and their increasingly questionable environmental credibility.

“Today, the possible end of fossil fuel reserves, or the need to restrict their use because of climate change, brings industrialized societies to a new watershed,” said the report. Our oil dependent global economy is finally realizing it will have to change, and fast. But with more people to feed and food market already showing the strain, fuelling the developed world must not come at the expense of feeding the poor.

Comments (2 of 2)

Dear Farmer John, it's because the article only references a section of a large problem. Production of biofuels does not only affect the increasing need for animal feed, but it also increases water and land demand. Arable land is limited and so are other important agriculturally related products such as phosphorous. It's not to say that you are not right about oil prices increasing the cost of food, rather, increased production of biofuels increases the demand for a limited supply of fuel. When there is more demand and less supply, prices go up. Biofuel production can thus add to the price of fuels.

2:39 pm August 4, 2011

Farmer John wrote:

Why does the artilce leave out the fact that 1/3 of all the corn used in ethanol production comes back as distillers grain, a high protein and economical feed souce for livestock. Ethanol production produces feed and fuel!
If you really want to see what's driving up the cost of food, look at oil prices. Our dependency on oil to transport and package our food leaves us very vulnerable to high oil prices. Gas costs $1 more per gallon this summer than it did last. And another thing, when corn prices come down, do you really think the grocers prices will come down. Not a chance as history has showed in the past.
United States farmer have the ability to meet all of the demands for food, feed, fuel and fiber.

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